Determinants of Horizontal Milk Producer Price Integration

This paper analyses the efficiency of EU internal dairy markets between 2000 and
2014 from spatial price integration perspective, employing a cross-methodological
approach in three steps. First, we analyse the spatial integration of raw milk
markets, which is often used to test the efficiency of agricultural markets. National
monthly raw milk price data are tested for integration and whether the Law of One
Price (LOP) holds. Second, we assess integration results in a binary choice setting,
employing gravity model variables. Finally, in order to partly overcome the often
cited drawback of price transmission analysis (i.e. that by employing price
variables (only), there is no connection with real trade flows), bidirectional
network analysis models are designed using export variables. Country specific
network centrality measures were contrasted with the frequency of LOP fulfilment.
Results suggest that besides the milk volume traded, the position occupied in the
trade network structure should be also considered when market integration is
analysed.